China abolished the export tax rebate policies that encouraged enterprises to export billet and steel ingot here Friday. Experts said this measure aims to restrict the export of iron ore, whose price increases 71.5 percent from April.

As China's economy develops, China needs more and more steel. However, China has little storage of iron ore, raw material to make steel. So China has imported large amounts of iron ore.

In recent years, China's steel production has been on a sharp rise and the country has begun to rely on iron ore imports. In 2003, China replaced Japan as the world largest iron ore importer. Last year, the country's steel production reached 272 million tons and imported iron ore was 208 million tons, up 40.5 percent over the previous year. More than 50 percent of iron ore used in China come from imports.

Experts predict in 2005 the imports of iron ore will continue to rise. The Bao Steel, China's largest steel company, announced Feb. 28 on behalf of China's steel companies to accept the price rise on the supply contract signed by a Japanese steel company and Brazilian iron ore supplier CVRD.
 
As China relies heavily on imports, the price soar of imported iron ore would bring heavy pressure to steel companies.

According to a report released by the State Information Center, the cost of China's whole steel industry in 2005 will increase by 20 to 30 billion yuan (US$2.4-3.6 billion), accounting for 20 to 30 percent of the industry's profits in 2004.

Liu Xiaobing, an analyst with the custeel.com, a network that serves for China's 12 major steel companies, said the measure will properly change the doings that exports low value-added steel ingot which is made from expensive imported iron ore.

As China exports less steel ingot, it will need less iron ore, he said.

He said this also shows that the government wants to encourage industrial enterprises to adjust and change their growth pattern from energy and resource consuming to energy-saving.

However, he said the measure will pose a great impact on steel ingot companies.

According to statistics from China's General Administration of Customs, China exported 840,000 tons of steel ingot in February, up 713 percent year-on-year.

Liu said China will export seven million tons of steel ingot, with tax rebates reaching 2.9 billion yuan (US$ 350 million), or 3.6 percent of the profit of the steel industry, if the policy had not been abolished.

He said he's afraid that after the policy was abolished, large amounts of steel ingot will be overstocked and small and medium-sized companies will be closed down.

(Xinhua News Agency April 2, 2005)